PNB Vesper Life Science Pvt Ltd. v. Registrar Of Co-Operative Societies
2023-04-10
GOPINATH P.
body2023
DigiLaw.ai
JUDGMENT : The facts of this case (to the extent they are required to be considered for the adjudication of the only point now arising) are brief -the 1st petitioner -PNB Vesper Life Science (P) Ltd., is a company incorporated under the Companies Act, 1956. The 2nd petitioner is stated to be a former Director of the 1st petitioner. An item of property belonging to her has been mortgaged to secure the repayment of a loan availed by the 1st petitioner from the erstwhile Thrissur District Co-operative Bank, which has now merged with the 1st respondent -the Kerala State Co-operative Bank Ltd. (‘the Bank’). On 30.3.2023, the 1st petitioner remitted an amount of Rs. 2,46,95,424/-to the 2nd respondent Bank in full and final settlement of its liabilities. [The amount to be paid by the 1st petitioner to settle the liability under a one-time settlement was intimated to the 1st petitioner through Ext P.20 letter dated 23.03.2023 and the amount was to be paid on or before 31.3.2023]. On account of the settlement of liability, as above, the only relief in the writ petition that survives for consideration is relief No. (vi) which reads as under:- “(vi) Declare that when the loan, in respect of PNB Vesper Life Sciences Pvt. Ltd which the mortgage was created, is repaid in full, the bank has no right to retain the documents in respect of the petitioner's property.” The 2nd respondent bank has, through its pleadings in this Writ Petition and the submissions of its counsel, opposed the grant of the aforesaid relief though it does not dispute the fact that the liability of the 1st petitioner stands completely settled as of date. According to the bank, a company named Cybele Herbal Laboratories (P) Ltd. (of which the 2nd petitioner and her husband are Directors/promoters) owes substantial amounts to the bank. The 2nd petitioner and her husband are also sureties in respect of the loan/loans extended to that company. It is the contention of the bank that it is entitled to exercise its right of general lien (Banker’s lien, as it is often referred to) under Section 171 of the Contract Act, 1872 over the documents of title deposited by the 2nd petitioner to secure the repayment of amounts advanced to the 1st petitioner.
It is the contention of the bank that it is entitled to exercise its right of general lien (Banker’s lien, as it is often referred to) under Section 171 of the Contract Act, 1872 over the documents of title deposited by the 2nd petitioner to secure the repayment of amounts advanced to the 1st petitioner. It is also the contention of the Bank that though the 1st petitioner availed a loan from the erstwhile Thrissur District Co-operative Bank and Cybele Herbal Laboratories (P) Ltd. had availed a loan from the erstwhile Ernakulam District Co-operative Bank, both these banks have now been merged and amalgamated with the 2nd respondent bank, and therefore it can legally exercise its right of lien. 2. The learned counsel for the petitioner states that since the 1st petitioner company and Cybele Herbal Laboratories (P) Ltd. are independent entities having separate and distinct legal statuses and personalities and since the property of the 2nd petitioner is not mortgaged for securing the repayment of amounts due from Cybele Herbal Laboratories (P) Ltd., it is not open to the Bank to contend that the documents relating to the property of the 2nd petitioner will not be released notwithstanding the fact that the liability of the 1st petitioner stands fully settled. The learned counsel places reliance on the judgments of this Court in Lonankutty Antony v. Joint Registrar of Cooperative Societies, 2016 (2) KHC 505 ; Vinu Madhavan v. State Bank of India, Judgment dated 17.03.2023 in W.P (C) 4806 of 2023; Shalini K.S v. Karuvannur Service Co-operative Bank Ltd., Judgment dated 06.02.2023 in W.P (C) 40778 of 2023; the judgment of the Karnataka High Court in Vijaya Bank & anr v. Naveen Mechanised Construction (P) Ltd. and ors, 2004 KHC 3838 and to the judgment of the Madras High Court in State Bank of India and anr v. Jayanthi & ors, 2011 KHC 2612 to contend that the stand taken by the Bank is arbitrary and illegal and contrary to the statutory provisions in the Transfer of Property Act, 1882. 3.
3. The learned counsel for the 2nd respondent Bank, on the other hand, questions the very maintainability of a writ petition against a Cooperative Society on the strength of the judgment of a Full Bench of this Court in K.C John & another v. Liquidator, Wadakkancherry Housing Co-operative Society Ltd. & ors, 2006 KHC 300 and further contends that the bank is well within its rights to exercise a lien over the documents in question on the ratio of the judgment of the Supreme Court in Syndicate Bank v. Vijay Kumar & ors, 1992 KHC 821. It is submitted that on the request of the bank, the Village Officer, Puzhakkal, Thrissur, has already marked the lien of the Bank over the property. Reference is made in this regard to Ext R2(b) produced along with the statement dated 1.4.2023 filed on behalf of respondents 2 & 3. It is submitted that since both the companies in question are private limited companies, they have to be treated as one single entity or as ‘quasi partnerships’. It is also submitted that the dispute, if any, between the petitioners and the bank will have to be adjudicated under Section 69 of the Kerala Co-operative Societies Act, 1969. 4. I have considered the contentions raised. The first question to be considered is whether the Writ Petition is maintainable. The question appears to be covered against the 2nd respondent on account of the Division Bench judgment of this Court in Managing Director, Kerala State Co-operative Housing Federation v. Leela Issac & ors, 2017 (2) KLT 942 where again, the issue was whether an apex society can retain title documents of a mortgagor even after the mortgagor had settled the entire liability with the primary society. After considering the law laid down in K.C John & another (supra) as also the judgment of the larger bench of 5 Judges of this Court in Association of Milma Officers v. State of Kerala, 2015 (1) KLT 849 it was held:- “18. We are aware of the verdict passed by the Larger Bench of this Court in 2015 (1) KLT 849 (cited supra), whereby the view taken by the Full Bench is stated as approved.
We are aware of the verdict passed by the Larger Bench of this Court in 2015 (1) KLT 849 (cited supra), whereby the view taken by the Full Bench is stated as approved. The Basic issue involved in the case considered by the Larger Bench was, whether the service conditions of the employees of a Co-operative Society could be the subject matter of consideration in an ‘Industrial Dispute’ raised before the Labour Court/Industrial Tribunal, in terms of the Industrial Disputes Act or whether it has to be pursued before the statutory authorities, in terms of the relevant provisions of the Special Provision of law under the Kerala Co-operative Societies Act/Rules. This, in turn, was answered by the Bench holding that the appropriate remedy was in terms of the provisions of the Kerala Co-operative Societies Act/Rules. Approval of the verdict passed by the Full Court is only having limited application, with regard to the above specific point and nothing more. The said verdict itself is an authority to hold that writ will lie, if there is a statutory duty or a public duty. Paragraph 19 of the said judgment reads as follows: “19. The term “authority” used in Art.226, in the context, must receive a liberal meaning unlike the term in Art.12. Art.12 is relevant only for the purpose of enforcement of fundamental rights under Art. 32. Art.226 confers power on the High Courts to issue writs for enforcement of the fundamental rights as well as non-fundamental rights. The words “Any person or authority” used in Art.226 are, therefore, not to be confined only to statutory authorities and instrumentalities of the State. They may cover any other person or body performing public duty. The form of the body concerned is not very much relevant. What is relevant is the nature of the duty imposed on the body. The duty must be judged in the light of positive obligation owed by the person or authority to the affected party. No matter by what means the duty is imposed. If a positive obligation exists mandamus cannot be denied.” A writ will lie against a Co-operative Society, if there is a public duty, as held by the Apex Court in Shri Anadi Mukta Sadguru S.M.V.S.J.M.S Trust v. V.R. Rudani ( AIR 1989 SC 1607 ).
No matter by what means the duty is imposed. If a positive obligation exists mandamus cannot be denied.” A writ will lie against a Co-operative Society, if there is a public duty, as held by the Apex Court in Shri Anadi Mukta Sadguru S.M.V.S.J.M.S Trust v. V.R. Rudani ( AIR 1989 SC 1607 ). The position is more clear from the ruling rendered by the Supreme Court in U.P. State Cooperative Land Development Bank Ltd. v. Chandra Bhan Dubey & Ors. ( AIR 1999 SC 753 ) and Board of Control for Cricket in India v. Cricket Association of Bihar and others (2015 (2) KLT SN 98 (C.No.114) SC = AIR 2015 SC 3194 ) and the verdict passed by the Division Bench of this Court in Peechi Service Co-operative Bank v. Tessy Varghese ( 2015 (4) KLT 919 ). 19. In so far as the appellant Federation has failed to substantiate that there is a valid contract between the Federation and writ petitioner/member of a Primary Society, authorising the Federation to keep the Title Deeds of the petitioners even after satisfaction of the loan liability to the Primary Society, retention of the Title Deeds cannot but be said as ‘arbitrary’. Once it is declared as ‘arbitrary’, there is clear violation of Art.14 of the Constitution of India, which is enough to have made interference by this Court, invoking the power under Art.226 of the Constitution of India. No statute can overreach the constitutional power of this Court and it is settled law, that existence of alternate remedy is not a bar for invoking the power under Art.226. In the above facts and circumstances, this Court finds that the idea and understanding of the appellant to mould the case with reference to the ruling rendered by a Full Bench of this Court in John v. Liquidator ( 2006 (1) KLT 11 (F.B.)) and the Larger Bench in Milma Officers v. State of Kerala ( 2015 (1) KLT 849 ) is thoroughly wrong and misconceived. The verdict passed by the learned Single Judge is perfectly within the four walls of the law and it does not warrant any interference. There is absolutely no merit in the appeals. Interference is declined and the appeals are dismissed accordingly.” I, therefore, hold that the Writ petition is maintainable. 5.
The verdict passed by the learned Single Judge is perfectly within the four walls of the law and it does not warrant any interference. There is absolutely no merit in the appeals. Interference is declined and the appeals are dismissed accordingly.” I, therefore, hold that the Writ petition is maintainable. 5. The next question to be considered is whether the 1st petitioner Company and Cybele Herbal Laboratories (P) Ltd. are to be treated as one entity on account of the fact that they are both private limited companies where the shareholders/promoters are the same. Lord Wilberforce, in his illuminating speech in Ebrahimi v. Westbourne Galleries Ltd., (1972) 2 All ER 492 (HL), while considering the ‘just & equitable’ clause as a ground for winding up of a Company held:- “A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.” The decision is quoted with approval by the Supreme Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333 . In LIC v. Escorts Ltd., (1986) 1 SCC 264 while considering the principle of ‘lifting of the corporate veil’ the Supreme Court held:- 90. “………………While it is firmly established ever since Salomon v. A. Salomon & Co. Ltd. [1897 AC 22] was decided that a company has an independent and legal personality distinct from the individuals who are its members, it has since been held that the corporate veil may be lifted, the corporate personality may be ignored and the individual members recognised for who they are in certain exceptional circumstances ……….” “Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern.
It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.” In the facts of the present case, apart from the fact that the Directors/promoters of the 1st petitioner Company and Cybele Herbal Laboratories (P) Ltd. are common, none of the circumstances which would compel this Court to apply the principle of ‘lifting of the corporate veil’ exist. Therefore, I hold that the 1st petitioner and Cybele Herbal Laboratories (P) Ltd. cannot be treated as one entity for holding that the documents deposited by the 2nd petitioner for securing the repayment of liability of the 1st petitioner can be retained on account of the fact that Cybele Herbal Laboratories (P) Ltd. owes substantial amounts to the 2nd respondent. 6. The question as to whether a ‘general lien’ or a ‘banker's lien’ can be exercised in respect of the documents in question is no longer res integra’. This issue stands squarely covered against the 2nd respondent in terms of the judgments of this Court in Lonankutty Antony (supra); Vinu Madhavan (supra) and Shalini K.S (supra). I am also in respectful agreement with the Division Bench judgments of the Karnataka High Court in Vijaya Bank & anr (supra) and of the Madras High Court in State Bank of India and anr (supra), which take the same view. The judgment of the Supreme Court in Syndicate Bank (supra) was considered by this Court in Lonankutty Antony (supra). Moreover, the facts of the case in Syndicate Bank (supra) clearly indicate that the findings contained therein cannot apply to the facts of this case. 7. As already noticed, it is not disputed that the loan account of the 1st petitioner stands closed. It is also not disputed that the documents of title relating to the property of the 2nd petitioner is mortgaged only to secure the repayment of the loan availed by the 1st petitioner. Therefore, this Writ Petition is allowed in terms of prayer no. (vi). The 2nd respondent is directed to forthwith return the documents deposited by the 2nd petitioner for the creation of a mortgage to secure the repayment of amounts due from the 1st petitioner.
Therefore, this Writ Petition is allowed in terms of prayer no. (vi). The 2nd respondent is directed to forthwith return the documents deposited by the 2nd petitioner for the creation of a mortgage to secure the repayment of amounts due from the 1st petitioner. It is clarified that the directions contained in this judgment will not, in any manner, prohibit the 2nd respondent from proceeding against the said properties in accordance with the law and other than on the basis that a lien has been exercised, in respect of them.